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Treasury Department Proposes Changes in Family Business Valuation Approach

Earlier this month, the Internal Revenue Service proposed changes to section 2704(b) that would remove what family business advocates consider legitimate valuation discounts for estate, gift and generation skipping taxes. These discounts have been used for nearly twenty years to protect family business from over taxation at the time of a transfer of shares via death or gift.

The Family Business Coalition (FBC) is urging anyone that owns and operates a family-owned business to make themselves familiar with the proposed rule and to submit comments about how the rule will negatively impact their business before the deadline on November 1, 2016.

In a one-page fact sheet the FBC notes that the valuation discounts family business owners can currently utilize are a fair reflection of the realities of minority shares. They note that minority shares should be valued at a discount for two reasons; a lack of control or a lack of marketability. The proposed rule would disregard these as legitimate reasons to discount the value of the shares if those restrictions lapse after the transfer.

“Private forest landowners own nearly 60% of the forests in this country, and those forests provide huge environmental, economic and societal benefits” said Scott Jones, CEO of the Forest Landowners Association. “Having fair and certain tax laws that preserve the economic vitality of maintaining a land asset as forests is in everyone’s best interests. The valuation discount rule is an important tool to ensure that families can afford to pass their timberland asset on to the next generation.”

The FBC has posted a summary of the proposal and an explanation of how it will impact family businesses on its website. The FBC and the Forest Landowners Association are urging their members to submit comments about how this rule will impact their business by submitting a formal comment on the rule. Comments can be made by following the link to the rule supplied earlier in this article and must be submitted by November 1, 2016. A public hearing will be held on December 1, 2016 at 10 a.m. in the Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC 20224. To speak at the public hearing you must be on the building access list. To be added to the list contact Regina Johnson (202-317-6901).